Sent into a spin: the unexpected costs of protectionism

Donald Trump’s recent tariffs have increased the prices of tumble dryers. This fact is more intriguing than it appears at first: the tariffs themselves did not apply to dryers. While it is widely known that tariffs increase consumer costs on the products they apply to, it’s easy to overlook the collateral damage they cause.

The tariffs of 20 per cent, rising to 50 per cent if quotas are filled, were applied last year on imported washing machines. A study conducted at the University of Chicago’s Becker Friedman Institute shows that the price of washing machines has since risen by 12 per cent ($86). That this increase is below 20 per cent has only been made possible due to a corresponding 12 per cent rise ($92) in the cost of dryers.

Imported dryers do not currently face tariffs when entering the US. However, dryers and washing machines are often bought together. At JC Penny, 96 per cent of shoppers who purchased one bought the other at the same time. This allowed shops to hide the cost of washing machine tariffs by sharing it with dryers.

Before the tariffs were introduced, the average price of a washing machine was $749 and a dryer cost $809. If shops had applied the 20 per cent tariff entirely on the former, it would have cost $899. Instead, consumers now pay $835 for washing machines, but this saving is offset by the new price of $901 for a dryer. It’s a neat trick by retailers to spread the cost of the price hike. Yet the total cost is higher, resulting in consumers losing out by an even greater amount.

The justification of the tariffs was to protect American industry from foreign competition. On the surface, it succeeded. Foreign companies were coerced into moving some manufacturing to the US, creating 1,800 new jobs. Meanwhile, the tariffs brought in $82m of revenue for the government.

However, when we dive deeper, problems emerge. Sales of washing machines fell by three per cent in 2018, ending three consecutive years of growth in the sector. Major washing machine manufacturers saw their stock price fall: Whirlpool’s stock reached $185 when the tariffs were announced in January, but had fallen to $104 by Christmas. Admittedly, the fall was not all the fault of the washing machine tariffs; the company faces increased costs in 2019 due to rising steel tariffs.

The picture is even worse for consumers. The price rises of the 10 million washing machines and washing machine parts purchased since the tariffs were introduced have cost consumers approximately $841m, with the price rises of the 7.7 million dryers costing an additional $710m. This means that, even accounting for tariff revenue, each new job comes with an annual cost of around $817,000 to the American consumer.

Such costs are extortionate, but not unexpected. When Barack Obama introduced tariffs to protect the American tire industry in 2009, the Peterson Institute found that each of the 1,200 jobs saved cost the American economy over $900,000 per year. Similarly, Trump’s tariffs on imported steel in 2018 have come at a cost of $650,000 per job supported.

The rise in the price of dryers may come as a surprise to the Trump administration. However, the tariffs were imposed in the knowledge that this would drive up washing machine prices. This leaves us with three possibilities: the administration believed that either the price hike would be smaller, that more jobs would be created, or that a single job in a washing machine factory is worth $817,000. If it’s the latter, workers in washing machine factories might want a new union.

The truth of the matter is that protectionism plays well into insular, nationalist rhetoric, but it’s simply not viable economics. It does little good for domestic industry and causes a great deal of pain for consumers. Ultimately, it just isn’t worth it.